220%10%20%30%40%50%60%70%80%90%100%1980 1985 1990 1995 2000 2005 2010US tech IPO & private fundingIPOs used to be the norm – but no moreFor most of the ‘90s the majority of tech funding was public – this has reversedSource: Capital IQ, Jay Ritter, University of Florida, NVCA, a16zIPOPrivate2014

9 0 1 2 3
4 5 1995 2000 2014 2020 Billion people online And market size is for real this time The internet is working now – from 40 million people online to 4 billion Source: ITU, a16z Smartphones People online

17 The headlines are ominous.
61 US tech “unicorns” (private company with >$1bn valuation). 75% of the largest VC investments have been raised in the last 5 years. Source: Capital IQ, CB Insights, a16z

24 Many companies that would
in the past have done an IPO are now doing late-stage private rounds. As you get to $40+ million rounds, these are effectively “quasi-IPOs.” These deals have different financials, investors, and risk profiles to classic venture.

27 As IPOs are delayed,
returns move from public to private investors. Thus, traditional public market investors and buyout funds, who would not typically invest in companies at this stage, have moved into the private markets.

31 0 10 20 30
40 50 Facebook (2012) Twitter (2013) LinkedIn (2011) Yelp (2012) Implied market cap with similar post-IPO returns to Microsoft ($tr) And you can’t make it back by waiting For Facebook to match Microsoft’s public market returns, it would need to be worth $45tr Note: Calculated from market cap at first close post-IPO. Source: Capital IQ, BEA Current US GDP

40 The collapse in the
cost of creating tech companies in the last two decades means many more are being created. With each one needing less money to get started, there are a lot more small rounds. That is, there is a surge in seed-stage funding.

49 Less money, more money
Which one do you want to believe? Both! Order of magnitude reduction in the cost of creating a software company Shift from expensive hardware and software to cloud, open source, GitHub, etc. So, more company creation, more rounds, smaller round sizes The seed surge It’s never been cheaper to create software companies Funding is cheap But scaling to address 3bn people is not War for talent (and office space) in SF Round sizes for hot deals have moved upwards But scaling to address the opportunity costs money

53 A note on data
Sharing the perspectives and analyses presented in this deck required a time series of overall funding. However, there is no source of comprehensive (let alone granular) deal-level data that goes back before the late 1990s. Therefore, we were obliged to vet and combine incomplete data from multiple sources. Where some data sets were more comprehensive on broad parameters but limited in historical range, others were broader than our definitions of software tech (e.g., they included medical devices). There were other screening differences as well; for example as larger deals became more commonplace but were not referred to as “venture” funding, we looked to a different source that would allow us to roll up that deal-level data as shown in this deck. To ensure as much rigor as possible in sourcing our data, we compared data from several sources against each other and then collated and de-duped it into a master data set for a few years which we then checked for accuracy across each of those sources to determine the best ones. While there are many caveats (and counterarguments!) we could make about the data given various tradeoffs, here are some of the key things to note when reviewing this deck: 1. Historical transaction-level data is much more robust after 1996 than before it. We also had to fuse together different data sets, using Jay Ritter & NVCA before 1996 and Capital IQ after 1996 and merging them at the join. 2. The data set for age at funding is not complete and becomes less complete the further back we go, especially before 1996. From 1998 to 2001 we are also missing founding year data for 20% of deals, versus 3% for later deals. The missing companies will skew heavily to small and/or young companies, so adding this data would show an even greater swing than the one we point to in this presentation. Notes for slide 30: Microsoft, Oracle & Amazon Series A valuations assumed at $3m for illustrative purpose; Series A to IPO represents return multiple from Series A valuation to market cap at first close post-IPO